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The Significance of the General Theory of Employment, Interest, and Money*

Published online by Cambridge University Press:  07 November 2014

G. A. Elliott
G. A. Elliott*
Affiliation:
The University of Toronto
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Extract

The General Theory was written “with the object of persuading economists to re-examine critically certain of their basic assumptions.” In accomplishing this purpose it has been completely successful, for it has influenced a very large proportion of the economic writings, not only professional but popular as well, that have been published during the last twelve years. The purpose of this paper is not to attempt to predict the place in the history of economic thought which it will eventually occupy but rather to point out some of the fields in which its effects are already obvious and important. These effects are attributable on the one hand to its timeliness and on the other to its form and content.

In one sense its timeliness is obvious: during the twenties and thirties in Great Britain, and during the thirties in many other countries as well, unemployment had been severe and prolonged. But it was timely in a more general and significant sense. Many other shocking things had happened, too, and it may not be out of place to recall a few of the familiar details of the British setting. Britain had come through the war victorious and had proudly hitched the pound sterling to gold at the old par of exchange; but London was no longer supreme in international trade; in the early thirties it had fallen to a discount even in time of peace. Income from foreign property had diminished. International trade was decreasing in importance. Taxes were heavy; landed estates were being dismembered; naval supremacy was impaired; the formerly well disciplined English labourers now well organized had staged a general strike; tastes and technology were changing rapidly. In the east, in Russia, a new economic order had arisen; and in the west the United States had become the dominant power in wealth and productive capacity. In the past these things had occurred within a generation.

Type
Articles
Information
Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 13 , Issue 3 , August 1947 , pp. 372 - 378
Copyright
Copyright © Canadian Political Science Association 1947

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Footnotes

*

This paper was presented at the annual meeting of the Canadian Political Science Association in Quebec, May 30, 1947.

References

1 Keynes, J. M., The General Theory of Employment, Interest and Money (London, 1936).Google Scholar

2 Ibid., p. v.

3 The italics are those of Lord Keynes. The General Theory, pp. 149-52.

4 Keynes, J. M., “The General Theory of Employment” (Quarterly Journal of Economics, 02, 1937).CrossRefGoogle Scholar

5 Under the circumstances it is surprising that so much importance, apparently, is attached to the rate of interest. However, as others have pointed out, the rate of interest becomes unimportant in the model if the liquidity schedule is sufficiently elastic relatively to the amount of money, or the schedule of efficiency of capital sufficiently inelastic relatively to the rate of interest. See for example Timlin, Mabel F., Keynesian Economics (Toronto, 1942), p. 49 Google Scholar; Modigliani, F., “Liquidity Preference and the Theory of Interest and Money” (Econometrica, 01, 1944)Google Scholar; Klein, L. R., “Theories of Effective Demand and Employment” (Journal of Political Economy, 04 1947, p. 111).Google Scholar

6 Harrod, R. F., “Mr. Keynes and the Traditional Theory” (Econometrica, 01, 1937).Google Scholar

7 See, e.g., Hicks, J. R., Value and Capital (London, 1939)Google Scholar; Lange, Oscar, Price Flexibility and Employment (Bloomington, 1944).Google Scholar

8 See, e.g., Timlin, , Keynesian Economics, p. 49 Google Scholar; Modigliani, “Liquidity Preference and the Theory of Interest and Money.”

8 Klein, , “Theories of Effective Demand and Employment,” p. 111 Google Scholar and Reder, M. W. “Interest and Employment” (Journal of Political Economy, 06, 1946).CrossRefGoogle Scholar

10 Schumpeter, J. A., “John Maynard Keynes” American Economic Review, 09, 1946, p. 515 n.).Google Scholar

11 In the works, e.g., of Ohlin, Hicks, Timlin, Modigliani, and Samuelson.

12 E.g.: Machlup, F., Metzler, L. M., and Mosak, J. L., General Equilibrium Theory in International Trade (Cowles Commission Monograph no. 7, Chicago, 1944).Google Scholar 13 Lange, Price Flexibility and Employment.

14 This short statement may be unduly dogmatic. Complications arise from the difficulty of classifying factors of production and these, in turn, from differences in marginal sub-stitutability and the speed with which substitution can take place. The statement is intended to call attention to these important practical problems. In the General Theory, pp. 296-302, these problems are subsumed under “diminishing returns” and a rising wage unit.

15 Compare Fisher, A. G. B., International Implications of Full Employment in Great Britain (Royal Institute of International Affairs, London, 1946).Google Scholar

16 Cf. Schumpeter, , “John Maynard Keynes,” p. 511 n.Google Scholar

17 Friedman, Milton, “Lange on Price Flexibility and Employment,” (American Economic Review, 09, 1946).Google Scholar

18 Keynes, , General Theory, p. 249.Google Scholar

19 For an excellent summary and discussion see Haberler, Gottfried, Prosperity and Depression (3rd ed, Geneva, 1941)Google Scholar, especially chaps. VIII and XIII.

20 See Hicks, J. R., Value and Capital, (2nd ed, Oxford, 1946), p. 153.Google Scholar

21 It is rather surprising that the author of Risk Uncertainty and Profit should give so little weight to real uncertainty, but see Knight, F. H., “The Business Cycle, Interest and Money : A Methodological Approach” (Review of Economic Statistics, vol. XXIII, 1941, pp. 61–3)Google Scholar and “Diminishing Returns from1 Investment” (Journal of Political Economy, 1944, p. 29).Google Scholar

22 See the final chapter of the General Theory entitled: “Concluding Notes on the Social Philosophy toward which the General Theory Might Lead” and Lord Keynes's article in the Quarterly Journal of Economics cited above pp. 221–2.

23 The controversy concerning the doctrine of economic maturity is well illustrated by the recent controversy concerning Terborgh's, George The Bogey of Economic Maturity (Chicago, 1945).Google Scholar See, e.g., Hansen, A. H., “Some Notes on Terborgh's ‘The Bogey of Economic Maturity’” (Review of Economic Statistics, 02, 1946)Google Scholar; Higgins, Benjamin, “The Doctrine of Economic Maturity” (American Economic Review, 03, 1946).Google Scholar

24 Canadian Paper on Employment and Income, presented to Parliament by the Minister of Reconstruction, April, 1945 (Ottawa, 1945).

25 Keynes, , “General Theory of Employment,” p. 215.Google Scholar